3 steps to successful farm succession planning
By Kimberlee Davis, Senior Financial Advisor 30 October 2018 8 min read
Step 1: Transfer of Labour
I’m sitting at the kitchen counter, visiting with my parents. My dad is just in from a long day in the fields and he’s downing a reheated roast beef supper. Between bites he mentions an auction coming up and the auger he is hoping to buy, but I’m only half listening because I’m thinking about bringing up a tricky topic. What happens when he hangs up the keys to the tractor for the last time?
We’ve talked about succession before, so I know my parents have at least ten more years of farming ahead of them. My dad always worked off farm in the oilfield, so now that he’s just farming, he considers this his retirement. And why not? If you are doing what you are doing because you want to, not because you have to, you can call that retirement. But even though ten years seems like a long ways away, I know as a financial advisor, it’s not too soon to be talking about what’s next for the farm - and for my parents.
So, with a deep breath I ask, “What do you think you’ll do when you retire?” We mull over potential succession candidates and talk about future possibilities. I point out to them that the first step in a successful transition is teaching someone the day-to-day farm duties. So far, no one has learned the ins and outs of their operation. The potential successors help out here and there, but most of the time it’s just dad out there on his own.
We call this step in farm succession planning the “Transfer of Labour”. In some operations, this step is intuitive. The child farms alongside the parent all their life and knows the day-to-day operations by the time they graduate. In other situations, like mine, this step doesn’t happen as smoothly. Maybe the potential successor leaves the farm and then chooses to return after years of being away. It could be that the parent resists giving up certain tasks or doesn’t trust the successor to do things the ‘right way’.
It’s pretty hard for a fiercely independent man like my father to allow anyone to help him out, but by viewing this as the first step in farm succession, I think that it’ll be a bit easier to for him to stand back and begin to coach a new generation. Luckily for my father, I’m also a stubborn chip off the ol’ block. While he would rather avoid the discussion, my goal is to help him start talking about it, and figure out how to train and identify someone to continue on with our farm’s legacy when he retires.
Step 2: Transfer of Control
Whenever the topic of farm succession comes up around my parents’ dinner table we end up sharing stories about neighbours whose transitions were less than successful. It’s these stories that cause us to tread carefully with our own farm.
When my own family was very young, we had lovely neighbours, farmers who had “moved to town” (a farmer’s euphemism for retired). I began spending time with the folks next door and I noticed something, even though they had “moved to town,” they were still driving the decision making on the farm. It seemed that these hardy farmers would be around forever, but unfortunately, that wasn’t going to be the case. Within a couple of years of my husband and I moving next door to them, both of my spry neighbours found themselves in poor health and it was devastating for the farming operation.
These neighbours had two sons who were skilled at performing the day-to-day duties of the farm, but what they had never done all together was make decisions. Transfer of Labour as discussed in my last article, was complete, but “Transfer of Control” was a critical missing piece.
In this case, my neighbours knew their boys did not get along and they kept the peace by making all of the operational decisions themselves. Now, without their parents as a buffer, the two successors were frequently butting heads and the operation and their relationship suffered. Back then, I didn’t know what I do now about farm succession, but if I had, I would have offered this metaphor as advice: “Teach your kids to drive!”
Learning to operate a farming operation is like learning to drive. You progress from driving in the pasture, to the back roads, until finally, you are driving a grain truck on the highway. Successors learn the same way, they move from minor decisions to more impactful ones until they are making major operational choices. Every succession is different, but it’s important that the first time your successors drive your operation, they aren’t doing the decision making equivalent of hauling a Super B of grain. Your successor might hit the ditch or get stuck in the mud, but if you are there to pull them out with the tractor, they’ll be on their way to becoming a farmer you’ll be proud of.
What can we learn from all this? I’ve committed with my own family, that instead of talking about other’s less than successful transitions around the dinner table, we are going to spend some of this precious time having the hard conversations about what our transition needs to look like and how will will go about transferring control. Someone will need to take the wheel and we are working together to figure out what that hand off looks like.
Step 3: Transfer of Ownership
My parents have a large kitchen table. It’s a beautiful piece of furniture that was crafted out of 100+ year old barn wood, salvaged from our old barn. Holidays bring the family together and we all sit around this piece of history, discussing the past, the future and our hockey pools.
In a couple of months we will sit down at this table for a very specific reason: to discuss who will help us with our farm succession plans. We’ll be choosing our team, not this time for the hockey pool, but for our team of farm succession experts.
To do this, we have to consider the fact that my parents have a variety of potential successors from children, grandchildren and a nephew. Even though my family is still working on the first two steps of farm succession, transfer of labour and transfer of control, it’s important for us to discuss this final step of transfer of ownership and to keep it in mind as we go through the other steps.
I talk to my parents about transfer of ownership now because the more time they have to transfer assets, the more and better options they will have available to them. This stage of farm succession gets pretty complex and it becomes very easy to get stuck in the process. It’s important to remember that we don’t need to be experts in farm succession to move forward, but we do need to surround ourselves with a team of advisors who have a good understanding of farm succession to help us along our journey.
So who will be on your all-star team?
Accountant: Not just any accountant, we need an accountant that understands the intricacies of farming, farm succession and taxation. Since it’s a specialized and complex field, we’ll make sure that we are using someone with the skills necessary to guide us.
Lawyer: Depending on how we decide to go forward, we may need help with estate planning, corporate structures, or even pre-nuptial agreements.
Insurance Advisor: Insurance might help us protect against unforeseen events, and it can also help my parents who are concerned about leaving an estate to non-farming children by ensuring the policy goes to them.
Financial Advisor: Transitioning from farming to retirement is a major life change. An advisor, like me, can provide advice and guidance throughout the whole process. We also build networks with all these other farm succession experts and can refer you to people we know and trust to be part of your team. My parents will need advice on how to create a lasting income once farm assets are transferred and my primary value as an advisor is to ensure their investment funds will help them achieve their short and long term goals.
Agronomist: I talked about a family arguing over decision-making; an agronomist can act as a neutral third-party, assisting the family in making a variety of decisions. If a farm is struggling to support more than one family, it might be helpful for an agronomist to explore how a farm could be more productive.
Moderator: I like to think our family gets along really well, but the reality is farm succession discussions can be emotional. We might consider having a neutral professional facilitate a formal family meeting to discuss the plans for the farm.
So the next time you’re sitting around your family table, I encourage you to start the discussion about who you might need on your team. Whether you gift, sell or bequest your farm through your will—or a combination of the three—a team of experts will be your best shot at winning the farm succession game.
There is more at stake when choosing your farm succession team versus your family hockey pool, but with the right team in place you’ll have the best chance of everyone involved coming out on top.
Kimberlee Davis was raised on a family farm that has seen four generations of farming in the Vauxhall, Alberta area. As a Senior Financial Advisor with ATB Securities Inc, Kimberlee works with Southern Alberta clients to develop comprehensive plans for their future including farm succession and retirement planning.